CITIC SEC: The peak of capital outflow is over, the value of bank stock allocation is steadily rising.

CITIC SEC releases a research report stating that passive funds saw a significant outflow in January, resulting in net outflows of 377.3 billion/910.2 billion yuan for 11 bank-related ETFs in the past week (from January 26th to 30th) and in January. This led to an approximate net outflow of funds of 48.5 billion/105.1 billion yuan for bank stocks (calculated value), causing the sector to drop by 6.1% since the beginning of the year. The dividend yield for the sector is currently at 4.4%, moving into a high cost-effective range. Despite seeing the largest outflow of funds in a single week, bank indices rose by 1% last week, indicating a significant increase in the willingness of long-term institutional investors to allocate funds to the sector. Looking ahead to 2026, it is expected that the first quarter will see a strong start in lending and a favorable operating environment for banks, with stable interest margins and asset quality expectations, as well as revenue and profit growth, solidifying the core equity asset value. CITIC SEC's main points are as follows: The peak outflow of funds in the sector has passed, and the value of allocation is starting to show 1) In January, passive funds largely flowed out, relieving short-term pressure, with limited downside impact ahead. The bank's calculations show that in the past week and in January, a total of 377.3 billion/910.2 billion yuan flowed out of 11 bank-related ETFs such as the CSI 300, SSE 50, and CSI Bank indices, resulting in an estimated net outflow of approximately 48.5 billion/105.1 billion yuan for bank stocks (calculated values which may deviate from actual figures). With ETF shares of the CSI 300 and SSE 50 falling by 48% and 53% respectively in January, the pressure to reduce passive funds has been largely released, limiting the potential downside impact. 2) Valuation and yield advantages are reappearing, with market stabilization enhancing attractiveness for allocation. Last week saw the largest net outflow of ETF funds for January, yet the CITIC BANK stock index (CI005021.WI) still recorded a +0.87% increase, indicating that institutional investors have begun actively positioning themselves; in January, the CITIC BANK stock index (CI005021.WI) experienced a significant pullback, with the sector's market-cap-weighted dividend yield rising by approximately 40 basis points to around 4.4% from the beginning of the year, with some large-cap blue-chip stocks yielding over 5%, falling into a high cost-effective range. Two city commercial banks released their 2025 performance reports last week, showing resilience in operations. Last week, two city commercial banks (BQD and Xiamen Bank Co.,Ltd.) announced their 2025 performance reports with the following data: 1) Revenue growth is maintained as profit growth accelerates. BQD's revenue/mother net profit increased by +7.97%/+21.66%, with full-year profit growth accelerating further from Q1-Q3 (+15.54%); Xiamen Bank Co.,Ltd.'s revenue/mother net profit increased by +1.69%/+1.52%, with full-year profit growth picking up from Q1-Q3 (+0.73%). 2) Expansion of loans and deposits indicates economic resilience. In 2025, BQD's loans/deposits increased by +16.53%/+16.41%; Xiamen Bank Co.,Ltd.'s loans/deposits increased by +18.39%/+13.75%. 3) Asset quality remains strong with overall sufficient risk coverage. By the end of 2025, BQD had a non-performing loan ratio of 0.97%, significantly improved from the beginning of the year (-0.17 ppts), and its provision coverage ratio had increased by 51 percentage points to 292.30% from the beginning of the year; Xiamen Bank Co.,Ltd.'s non-performing loan ratio was 0.77%, with a provision coverage ratio of 312.63%. It is expected that banks will have an active start in the first quarter with credit disbursements, maintaining stable operations throughout the year. The bank believes that in the first quarter, banks will continue their strategy of "early lending, early returns," pushing for a strong start through pre-assessment and project reserves to achieve similar levels of new credit issuance compared to the same period last year: 1) Corporate lending remains the main driver of credit growth. Corporate lending is expected to be the main source of incremental growth, focusing on infrastructure, advanced manufacturing, technology finance, and policy-supported industries, while retail growth is expected to be weak but could stabilize with adjustments in product offerings and customer segments; 2) Interest margin expectations remain stable. Despite the downward pressure on asset-side yields, net interest margin is still in a downtrend, but with support from liability cost containment and asset structure optimization, the rate of decline is expected to slow down and gradually stabilize; 3) Revenue growth is expected to surpass last year. The bank predicts that net interest income and revenue growth will continue to improve, with overall stable asset quality supporting steady profit growth. Risk factors: Significant downturn in macroeconomic growth; unexpected deterioration in bank asset quality; unexpected changes in regulatory policies.